Friday, July 25, 2008

There's still a lot of capex cuts flowing through the industry here. I've been saying notions of Q4 recovery for memory capex were going to fade as NAND took another big dip in pricing and demand... and it's happening now. Sandisk said they'd cut capex quite a bit and pushed out some expansion plans. Hynix said they'd shutter some US capacity and maybe look to sell the unit. Samsung's memory comments last night were pretty bleak. Samsung is the port in the storm for the industry -- they've been spending aggressively through the downturn -- expect that to change as reality sets in.

Lam is going to have to throw in the towel on a December recovery. After that, I don't know yet. Possibly all these memory capacity cuts will set the stage for a good second half of 2009. That's a ways out. For now I suggest letting the bad news flow.

Varian is a semicap with a lot of memory exposure. As the memory market has been under extreme pressure for most of the year I've been saying sell VSEA, LRCX, MTSN, FORM, KLAC... they're all much more memory dependent than the historical norms. It's been biting most of them in the ass. Varian is no exception.

The current quarter was fine. The outlook was dismal. They guided to revenues of 130-140mm with the street at 176mm and earnings of break even with the street looking for 24 cents. The stock charts to roughly 23.1 where I'll look to cover.

Western Digital (WDC) reported better than expected numbers for the quarter but guided gross margins to 19.3% for next quarter -- the street was assuming over 21% on slightly better revenue. The net of it is an EPS outlook a dime below the street.

Though channel inventory was worked down across the industry, OEM pricing came through worse as a result of the availability of drives while negotiating was in process.

I'd suggested shorting this stock in the mid and high 30s. I wouldn't really be a buyer until its under 25.